Pressures in the domestic capital market caused by liquidity strains are normal, but they are under control as the People's Bank of China (PBOC), the country's central bank, has been injecting liquidity into the market in a timely manner, experts said.
In recent weeks, interbank market money rates increased due to liquidity strains ahead of quarterly regulatory reviews of financial institutions and tax payments, the Xinhua News Agency reported on Tuesday.
The benchmark overnight Shanghai Interbank Offered Rate (SHIBOR), which measures the cost at which banks lend to one another, has continued to rise in recent days. On Tuesday, it was up 2.52 basis points (bps) to 2.8419 percent, PBOC data showed.
The one-month SHIBOR rose 8.03 bps to 4.3633 percent, the highest level in more than two months, according to PBOC data.
The market is being disturbed by deleveraging, deflating market bubbles and tightened liquidity management as well as seasonal factors, but this combination of pressures has been common in the past, Lian Ping, chief economist at Bank of Communications, told the Global Times on Tuesday.
Given the situation, the financial market will be under pressure in the near term, while the real economy will feel a negative impact in the long term, Lian said.
"The central bank will strengthen efforts to maintain stable operations," he said.
The PBOC injected 498 billion yuan ($73.3 billion) into the financial system on Tuesday through its medium-term lending facility (MLF). The interest rate for one-year MLF loans was unchanged at 3.2 percent, according to a statement the PBOC released on its website.
On Monday, the PBOC restarted 28-day reverse repurchase operations.
But on Tuesday, it skipped daily reverse repo sales, the first suspension since May 27 this year.
It is normal to see liquidity strains in June due to factors including debt contraction caused by deleveraging and macro prudential assessment, said Liu Dongliang, a senior analyst at China Merchants Bank.
Liu told the Global Times on Tuesday that the central bank is actively injecting fresh funds into the financial system in recent days, so "the situation is under control."
China has set the tone of its monetary policy in 2017 as prudent and neutral, and it seeks to maintain an appropriate liquidity level while avoiding excessive liquidity injections.
"Prudent and neutral" means that its policy stance is neither tighter nor looser, the 21st Century Business Herald said Tuesday, citing PBOC official Li Bo.
"Not tighter" means that monetary policy supports normal and reasonable economic growth, keeps basic liquidity stabile and prevents systemic financial risks, Li was quoted as saying.
If the policy setting is too loose, it is hard to get rid of zombie enterprises or excess capacity, according to Li.
